Friday, June 12, 2015

A new way to profit from counterfeit coins

This story is three months old and was discussed by Paul Gilkes on CoinWorld.com but otherwise I haven't seen much on it.

Thomas Zambito, writing for NJ.com, reported on March 24th that federal investigators discovered metal recycling companies attempted to turn in over $5,000,000 in counterfeit but corroded dimes, quarters, and half dollars to the US mint to be redeemed at nearly face value.

The US government pays $19.84/pound for dimes, quarters and half dollars that are bent, broken or corroded. For example, a Kennedy half dollar weighs 11.34g. $20 face in these coins is about a pound, thus the broken coins are redeemed at nearly face value.

“A metallurgical analysis by a [Customs and Border Patrol] laboratory from a sampling of mutilated coins taken from circa 2010 and 2011 shipments by one of the suspect firms determined that not only was the percentage of copper and nickel off from genuine U.S. coins, the composition also included aluminum and silicon, neither of which has been used in a circulating U.S. coin.”

The counterfeits were “uniformly mutilated by mechanical means, before being subjected to chemical treatment to corrode” them. What was the scale of this counterfeit operation? Approximately $5.4 million in face value for 2014. This has been going on since 1999, when the mint started scheduling quarterly melts because of the vast amounts of coins being turned in by Chinese recyclers. Assistant U.S. Attorney Lakshmi Srinivasan Herman wrote a forfeiture complaint claiming that “There would have to be approximately $900 in coins in every vehicle ever exported to China as scrap metal in order to account for the total amount of waste coins imported from China for redemption.”

Counselor Herman also is quoted as claiming “more half dollars have been redeemed by China-sourced vendors in the last 10 years than the United States Mint has ever manufactured in its history.” In the 1970s the mint cranked out hundreds of millions of half dollars each year. I have a hard time believing the Chinese are counterfeiting on that vast a scale. It is also difficult for me to comprehend $900 of fraud at US Treasury expense for every car scrapped to China.